Gulfport Energy Corporation Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

Income Taxes

Income Taxes

12 Months Ended

Dec. 31, 2013

Income Tax Disclosure [Abstract]

Income Taxes

INCOME TAXES

The income tax provision for continuing operations consists of the following:



	2013		2012		2011
	(In thousands)
Current:
State	$	6,860	$	84	$	—
Federal	6,325		646		282
Deferred:
State	7,385		2,214		—
Federal	77,566		23,419		(372		)
Total income tax expense (benefit) provision from continuing operations	$	98,136	$	26,363	$	(90	)

A reconciliation of the statutory federal income tax amount to the recorded expense follows:



	2013		2012			2011
	(In thousands)
Income from continuing operations before federal income taxes	$	251,328	$	98,199		$	108,332
Expected income tax at statutory rate	87,965		34,370			37,916
State income taxes	9,297		1,493			4,227
Other differences	874		292			(146		)
Changes in valuation allowance	—		(9,792		)	(42,087		)
Income tax expense (benefit) recorded for continuing operations	$	98,136	$	26,363		$	(90	)

The tax effects of temporary differences and net operating loss carryforwards, which give rise to deferred tax assets and liabilities at December 31, 2013, 2012 and 2011 are estimated as follows:



	2013			2012			2011
	(In thousands)
Deferred tax assets:
Net operating loss carryforward	$	1,462		$	1,513		$	40,880
FASB ASC 718 compensation expense	634			762			520
Investment in pass through entities	—			—			78
AMT credit	7,968			1,643			1,000
Non-oil and gas property basis difference	—			—			103
Charitable contributions carryover	25			5			3
Unrealized loss on hedging activities	8,540			3,836			—
Foreign tax credit carryforwards	2,074			2,074			—
State net operating loss carryover	4,408			4,315			6,410
Total deferred tax assets	25,111			14,148			48,994
Valuation allowance for deferred tax assets	(4,743		)	(4,629		)	(12,347		)
Deferred tax assets, net of valuation allowance	20,368			9,519			36,647
Deferred tax liabilities:
Oil and gas property basis difference	72,173			15,049			35,637
Investment in pass through entities	8,799			3,618			—
Non-oil and gas property basis difference	249			227			—
Investment in nonconsolidated affiliates	46,495			9,232			—
Unrealized gain on hedging activities	—			—			10
Total deferred tax liabilities	127,716			28,126			35,647
Net deferred tax asset (liability)	$	(107,348	)	$	(18,607	)	$	1,000

The Company has an available federal tax net operating loss carryforward estimated at approximately $4.2 million as of December 31, 2013. This carryforward will begin to expire in the year 2023. Based upon the December 31, 2013 and 2012 net deferred tax liability position of the Company's oil and gas assets, management believes that this is a positive source of evidence to utilize the carryforward before it expires. Therefore, a valuation allowance has not been provided at December 31, 2013 and 2012. A valuation allowance has been provided at December 31, 2011 because it was management’s belief at that time, based upon the Company’s past history of no taxable income and future projections of no taxable income during the carryforward period, it was more likely than not that the net deferred tax assets would not be realized. The Company also has state net operating loss carryovers of $84.8 million from Louisiana that will begin to expire in 2014, alternative minimum tax credits of $8.0 million with no expiration date and federal foreign tax credit carryovers of $2.1 million which begin to expire in 2017. The Company has recorded a valuation allowance of $4.7 million related to state net operating loss carryovers and foreign tax credit carryovers as the carryovers may not be utilized based upon a more likely than not basis.

In 2012, the Diamondback Contribution generated an estimated $61.9 million taxable gain. As a result, the Company recognized $9.8 million of its deferred tax assets which had previously been subject to a valuation allowance. The Company also recognized $25.6 million of deferred tax expense in 2012 primarily due to the utilization of prior net operating losses from the Diamondback Contribution gain. In 2013, the sale of Diamondback common shares generated $120.0 million taxable gain resulting in deferred tax expense of $35.7 million and current tax expense of $13.2 million. The Company's current federal tax expense in 2013 and 2012 is primarily attributable to alternative minimum tax.

- Definition

The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information.

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